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States get back on their feet, fear austerity push

Reuters has an interesting report today on U.S.

Reuters has an interesting report today on U.S. states benefiting from an economic upswing, and now reaching a level of "financial prosperity they enjoyed before the recession." The recovery is "slow and uneven," according to the National Governors Association and the National Association of State Budget Officers, but revenue and investments are finally improving.

The report's caveats notwithstanding, the news is generally encouraging. It's an economic detail that often goes overlooked, but state cutbacks have been a significant drag on the economy in recent years. The Recovery Act stemmed the tide in 2009, but when stimulus money ran out, states, which do not have the luxury of running deficits, were forced to slash spending and public-sector employment, necessarily slowing the larger recovery.

As 2012 draws to a close, however, most states have picked themselves up, dusted themselves off, and are ready for a rebound. There's just one problem: federal austerity.

After years of budget cuts and sluggish recovery, states expect to see their revenues climb back to prerecession levels this year for the first time since the financial crisis hit. But even as some states hope to restore some of the deep spending cuts they have made, they face a new threat.Washington's efforts to tame the federal deficit, state officials fear, could end up further whittling away the federal aid that states depend upon and weakening the economy as it slowly mends.

"What we're really seeing here is there is not enough money to make up for any federal cuts," Scott D. Pattison, the executive director of the state budget officers' association, told the New York Times. "What I've heard from the state budget people is that they've told departments and agencies in state government: Do not expect us to have the money available, even if we wanted to, to make up for federal cuts."

Given national priorities, the policy is backwards.

It gets back to a discussion we had last week. The current fiscal debate in Washington is not about creating jobs or growing the economy; it's largely the opposite -- Republicans are demanding that policymakers take capital out of the economy, not put investments in. President Obama hopes to reach debt-reduction goals in the most progressive and unobtrusive ways possible, but it's still a conservative conversation.

What states fear, in other words, is austerity, which by definition is intended to slow the economy, just as they're starting to see brighter days. Here's hoping Congress takes the fears seriously.